9MFY21 realised net income (RNI) of RM126.6m came in broadly within our (61%) and consensus (59%) expectations, as we expect a stronger 4QFY21 premised on the reopening of the economy vs. a rough 1Q-3QCY21 patch. 9MFY21 GDPU of 3.86 sen is also broadly within (64%). Maintain FY21-22E earnings of RM208-293m. MARKET PERFORM and TP of RM1.70 on FY22E valuation also maintained as we expect earnings to normalise by then.

9MFY21 realised net income (RNI) of RM126.6m came in broadly within our expectation at 61% and consensus at 59%. This is because 3QFY21 was a challenging quarter due to the MCO and we expect earnings to pick up in 4QFY21 with the reopening of the economy in Oct 2021 upon the high roll-out of Covid-19 vaccinations. A 3QFY21 dividend of 1.18 sen was declared, which included a 0.02 sen non- taxable portion bringing 9MFY21 dividends to 3.86 sen, which is also broadly within at 64% of our FY21 estimate of 6.07 sen, implying 3.6% gross yield.

Results’ highlight. YoY-Ytd, top-line was down by 12% as a result of lockdowns which affected tenants in Jan-Feb 2021 and in 2Q-3QCY21, while FY20 saw rental weakness since mid-March to May 2021 due to the pandemic. All in, RNI was down by 23% on the back of flattish operating and financing cost. QoQ, GRI was up by 13% on lower rental support provided to tenants during the quarter, but higher operating cost (+83%) caused RNI to decrease by 13%. Gearing remained stable at a low level of 0.23x.

Outlook. 4QFY21 is expected to see a recovery in terms of tenants’ revenue and less rental support vs. 1Q-3QFY21. We expect earnings to continue to improve gradually from here on and well into FY22 with the high national vaccination rates. FY21-22 will see minimal expiries for both malls, at <30% which provide some comfort during these economic conditions. We do not expect the acquisition of Southkey Mall in Johor to happen in the near term and reckon that it would take at least one reversion cycle or longer in light of the lingering Covid-19 pandemic for the asset to stabilise before being acquired by IGBREIT, likely by FY22-23.

Maintain FY21-22E CNP of RM208-293m on flattish to low single-digit positive reversions and minimal expiries. Our FY21-22E GDPU of 6.07- 8.27 sen (NDPU of 5.46-7.44 sen) suggest gross yield of 3.6-4.9% (net yield of 3.3-4.4%).

Maintain MARKET PERFORM and TP of RM1.70 on FY22E GDPS/NDPS of 8.27 sen/7.45 sen and on an unchanged +1.2ppt spread to our 10-year MGS yield target of 3.60%. Our applied spread is at +0.5SD, on par with other pure retail MREITs under our coverage. We remain mildly cautious to optimistic at this juncture for the normalizing of earnings in 4QFY21 and FY22. However, we will continue to monitor the situation closely as proper handling of the pandemic and vigilant supervision of SOPs remain vital to avoid renewed disruptions to malls’ operations and hence earnings.

Risks to our call include: bond yield expansion, weaker-than- expected rental reversions.

Source: Kenanga Research - 27 Oct 2021